Monday, May 6, 2013

Gold Bulls Split With Buffett as Traders Say Sell: Commodities

Hedge funds increased bets on a gold
rally by the most in three weeks as central banks signaled no
end to economic stimulus, driving prices higher just as analysts
and traders turned the most bearish in three years.
The funds and other large speculators raised their net-long
position by 19 percent to 54,762 futures and options as of April
30, U.S. Commodity Futures Trading Commission data show.
Holdings of so-called short contracts retreated 9.2 percent, the
most since March 19. Net-bullish wagers across 18 U.S.-traded
raw materials jumped 28 percent to 550,182, the biggest increase
in seven weeks, led by gains in soybeans, cocoa and crude oil.

Gold rallied 4.9 percent in the past two weeks after
entering a bear market April 12. The Federal Reserve raised the
prospect of increasing its monthly bond buying on May 1 and the
European Central Bank cut borrowing costs to a record low the
next day. Billionaire investor Warren Buffett said the metal has
no appeal even after the slump, and a weekly Bloomberg survey of
analysts and traders was the most bearish since February 2010.
“It’s reasonable to say that the currency debasement and
easing measures will support gold,” said Alan Gayle, a senior
strategist at RidgeWorth Capital Management, which oversees
about $48 billion of assets. “The bulls still have to prove a
lot. There is lot of skepticism surrounding gold. We have to
watch to see if prices have found a near-term bottom.”

Gold Rebounds

Futures climbed 0.7 percent to $1,464.20 an ounce on the
Comex last week. Prices rebounded 11 percent since reaching a
two-year low on April 16. The Standard & Poor’s GSCI Spot Index
of 24 commodities rose 1.4 percent last week, and the MSCI All-
Country World of equities gained 1.7 percent. The dollar slid
0.5 percent against a basket of six major peers, and a Bank of
America Corp. Index shows Treasuries fell 0.4 percent. Gold was
0.7 percent higher at $1,474 by 11 a.m. in London.
The Fed said at the end of a two-day policy meeting in
Washington last week it’s “prepared to increase or reduce the
pace of its purchases” of $85 billion in debt a month. Gold
surged 66 percent since the end of 2008 as the Fed was joined by
central banks in Europe and Japan in printing unprecedented
amounts of money, almost doubling sovereign debt to more than
$23 trillion, a Bank of America index shows.

Investors’ Faith

The flood of cash spurred investors including billionaire
John Paulson to hold the metal as a hedge against inflation.
Gold remains the best store of value in an uncertain economy,
Elliott Management Corp. told clients even as the $21.8 billion
hedge-fund firm founded by Paul Singer lost money on its
position this year. Threadneedle Investments, a London-based
fund with $131 billion in assets, remains bullish on gold as
central banks stick with printing money to weaken their
currencies and revive growth.
Some investors’ faith in the metal has waned as inflation
fails to accelerate even as central banks add liquidity. Global
holdings of the metal through exchange-traded funds slumped to
the lowest since October 2011 after touching an all-time high in
December. Buffett, the third-richest person in the Bloomberg
Billionaires Index, said last year in his annual letter to
shareholders that investors should avoid gold.
“If it went to $800, I wouldn’t be a buyer,” Buffett, the
chairman and chief executive officer of Berkshire Hathaway Inc.,
told reporters in Omaha, Nebraska, on May 2. “It just sits
there, and you hope somebody pays you more for it.”

Gold Outflows

Money managers withdrew $1.67 billion from commodity funds
in the week ended May 1, said Cameron Brandt, the director of
research for Cambridge, Massachusetts-based EPFR Global, which
tracks money flows. Outflows from gold and precious-metals funds
totaled $1.79 billion, he said.
Gold prices had the biggest two-day drop in more than three
decades last month, and a majority of the 38 analysts surveyed
by Bloomberg said the metal’s 12-year winning streak is over.
While the hedge funds’ short holdings declined in the week
through April 30, they are still more than triple the average
since 2006, when the data begins. Goldman Sachs Group Inc. said
April 23 the precious metal may slide to $1,390 in 12 months,
and Deutsche Bank AG predicts a drop to as low as $1,050.
“There are no inflationary worries, and gold is responding
to the global deflationary pressure,” said Jim Russell, a
senior equity strategist in Cincinnati at U.S. Bank Wealth
Management, which oversees about $110 billion in assets. “There
are no catalysts for gold to rise at the moment.”

Mint Sales

Last month’s declines attracted retail buyers. Sales of
gold coins by the U.S. Mint in April rose to the highest since
December 2009, while the U.K. Mint said it is increasing output
after demand more than tripled. Australia’s Perth mint has
stayed open through the weekend to meet orders that reached a
five-year high. Physical flows into India, the biggest consumer,
climbed to at least five times the average of the past 12
months, UBS AG said May 3.
Central banks are still adding to gold reserves that are
now at an eight-year high, according to International Monetary
Fund data. Banks bought 534.6 metric tons last year, the most
since 1964, according to the London-based World Gold Council.
They are on pace to exceed that this year, Jason Toussaint, the
managing director of investments at the council, said April 30.
Investors raised their bets on a rally for crude oil by 6.3
percent to 193,962 contracts, the first gain in three weeks, the
CFTC data show. The funds increased platinum holdings by 17
percent to 22,355, the biggest gain since January. Palladium and
silver wagers also increased.

Farm Bets

A measure of speculative positions across 11 agricultural
products surged 86 percent to 197,692 contracts. The funds
narrowed their bets on a decline in wheat to a net-short
position of 5,779 contracts, from 20,870 a week earlier. Bullish
corn holdings more than tripled to 45,497.
Wheat output in Kansas, the biggest U.S. grower of winter
varieties, will fall 18 percent in 2013 to 313.1 million bushels
after drought last year was followed by an April freeze, surveys
from a three-day annual crop tour showed.
“Weather conditions could push wheat prices higher, and it
could outperform other agriculture commodities,” said Nic Johnson, who helps manage $30 billion of commodity assets at
Pacific Investment Management Co. in Newport Beach, California.
“It’s not a one-way direction for gold. While many have changed
their minds and gone bearish, we stick to the fact that gold
prices will likely go higher.”